FASB Proposes Loan Mark to Market
Credit unions would have to book their loans at their current value on their balance sheets under proposed rules issued by the Financial Accounting Standards Board.
The regulations would require credit unions and other financial institutions with assets of more than $10 million to measure loan loss reserves on an "expected loss," basis rather than the current method which is a historical, or "incurred loss," approach.
Both the fair value and amortized original cost would have to be displayed on the balance sheet.
FASB wrote that the regulation's goal is to provide individuals who consult financial statements a "more timely, transparent and representative depiction of an entity's exposure to risk from financial instruments based on how they are utilized in an entity's business model."
In a letter to credit unions and state leagues urging them to submit comments to FASB before the Sept. 30 deadline, CUNA President/CEO Dan Mica wrote that "an initial and significant concern is the effect market volatility will have on loans with maturity dates in the distant future."
The regulations would take effect in 2013, but some nonpublic entities with less than $1 billion in assets would have an additional four years to comply with some of requirements.
To read the proposed rule, go to